The Securities and Exchange Board of India (SEBI) has raised concerns about the activities of authorised persons (AP) and has requested brokers to closely monitor their operations. The regulator may introduce stricter norms for APs due to increasing complaints about assured returns, cash payments, unauthorised trades, non-payment to brokers, and misappropriation of client funds. These potential changes could increase compliance costs for APs and brokers.

With the market rally following the pandemic and the increased participation of retail investors, the number of APs, also known as franchisees, has risen. For example, Angel One has over 20,000 APs, while Motilal Oswal Financial Services added more than 1,100 APs in FY23, bringing the total count to 8,033. ICICI Securities had about 41,000 business partners, APs, and independent financial associates as of March 2023.

Under current SEBI norms, stockbrokers are required to conduct periodic inspections and an annual audit of branches assigned to APs. However, SEBI is not pleased with the rapid growth of the AP business, especially considering the rise in client complaints, and is aiming to discourage non-serious players and implement greater checks and balances.

Various issues have emerged regarding the activities of APs, such as promising high returns, trading on behalf of clients, using client funds for personal trades, engaging in dabba trading, accepting cash payments, and closing their business after incurring losses. In some cases, APs have failed to pass on client payments to brokers, leading to disputes. SEBI received 1,499 complaints for non-receipt of payment/securities and 1,481 complaints for unauthorised trades in FY23.

The criteria for becoming an AP include being over 18 years old and having a tenth standard or equivalent certification. Some brokers have already implemented measures to discourage entities from becoming APs, such as appointing referral partners or business associates for a trial period and tracking their performance before granting AP status. Additionally, some brokers require deposit money in addition to the registration fees.

SEBI is considering implementing tighter norms for broker partners to protect customers’ interests. There is concern that some APs may lack the professional qualifications necessary to conduct business effectively given the access they have to the equity terminal, where significant gains or losses can be made at the press of a button.

SEBI and APs must have a written agreement covering various aspects, including the scope of activities, responsibilities, information confidentiality, commission sharing, and termination clause. It is essential for all receipts and payments of securities and funds to be made in the name or account of the broker.

Overall, SEBI’s plans to strengthen regulations for broker partners aim to curb unauthorised trading and misselling, ensuring greater protection for investors.

Source: indianmoneyreview.com

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